Inherited House Sale - Questions about Long-term Capital Gains Tax Calculation

The capital gains tax bracket is determined by your total taxable income INCLUDING the capital gain amount. The tax brackets for long-term capital gains (0%, 15%, 20%) are based on your total taxable income for the year. So you'll need to add the $15K gain to your other income to determine which rate applies. For 2025, if your total taxable income (including the capital gain) is under $47,025 for single filers or $94,050 for married filing jointly, you'd qualify for the 0% rate on the capital gains portion. For your second question, you can deduct the following selling expenses from your capital gain: - Real estate agent commissions - Attorney fees related to the sale - Title insurance - Advertising costs - Administrative costs Property taxes you paid while owning the home are deductible on Schedule A if you itemize, but they don't reduce your capital gain. Appraisal fees and inspection costs directly related to the sale can typically be deducted from the sales price to reduce your gain. Utilities and basic maintenance/repairs (like painting weathered trim) are generally not deductible against the gain - they're considered normal ownership expenses.

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I was skeptical about taxr.ai at first, but I decided to try it when I inherited my aunt's house last year. Wow - what a lifesaver! I was about to file with a $22K capital gain, but after using https://taxr.ai, I realized I could include several major expenses in my basis calculation that my accountant had missed. The tool identified that the new roof and HVAC system my aunt installed two years before her death should be added to the basis. It also properly calculated the stepped-up basis using the FMV at death. Ended up reducing my taxable gain by almost $14K! The documentation it generated was super helpful when I had questions from the IRS about my basis calculation. Definitely recommend it to anyone dealing with inherited property sales. Saved me thousands in taxes and gave me confidence that everything was properly documented.

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Don't forget about the $250K capital gains exclusion that might apply if any sibling lived in the house for 2 out of the 5 years before sale. If one of you used it as your primary residence, that could eliminate your portion of the gains completely.

Quick question- what about state taxes? Everyone's focusing on federal capital gains, but many states also tax capital gains, often at your ordinary income tax rate. Make sure to account for this in your planning!!

One important detail to double-check - make sure you're using the correct date-of-death valuation. Since you mentioned the FMV was "approximately $245,000," you'll want to have solid documentation for this stepped-up basis amount. The IRS may want to see a formal appraisal from around the date of death, especially since your sale price was significantly higher at $310,000. If you don't have a formal appraisal from the date of death, you might want to get a retrospective appraisal or use comparable sales data from that time period. The difference between using $245K vs. a potentially lower undocumented value could significantly impact your taxable gain calculation. Also, don't forget that any estate taxes paid on the property can be added to your basis under IRC Section 1014(a), though this typically only applies to larger estates that exceeded the federal exemption threshold.